This is an all too vivid an account of what is likely to be an ongoing and expensive venture into irresponsible lending and speculation -- all that the taxpayer's expense.

"Since the onset of the subprime crisis last summer, the White House has repeatedly rejected the notion of a government bailout, either for homeowners facing foreclosure or for the banks and mortgage companies that made the now souring loans. "There's no bailout with government money, none whatsoever," Treasury Secretary Hank Paulson emphasized. But even as the administration has stuck to its laissez-faire stance in public, behind the scenes a covert bailout has been under way, with a number of public and quasi-public agencies quietly dispensing vast sums to financial institutions saddled with worthless or near worthless mortgage securities. All the while, homeowners at the heart of the problem have been left largely to their own woes. The rescue operation brings to mind John Kenneth Galbraith's dictum that in the United States, the only respectable form of socialism is socialism for the rich . . .

Then there is the Federal Home Loan Bank system, an obscure institution that President Herbert Hoover set up in 1932 to stimulate mortgage lending. The F.H.L.B., actually 12 government-chartered but privately owned regional banks, exploits its semiofficial status to raise money cheaply in the bond market and lends the proceeds to its membership, including most of the nation's big banks and investment firms. Since last summer, the F.H.L.B. has been extending low-cost credit at an unprecedented rate—$184 billion in the third quarter alone. Recipients include Citigroup, which owed the F.H.L.B. $98.7 billion at the end of September; Countrywide Financial, which owed $51.1 billion; and Washington Mutual, owing $43.7 billion . . .

As a result of all this government-sanctioned activity, total mortgage lending nationwide actually rose in the third quarter of 2007, according to Richard Iley, an economist at BNP Paribas. However, as he pointed out in a recent research note, simply increasing the volume of business was probably not the only goal. "It is no exaggeration to say that the mortgage market was effectively nationalized" in the third quarter, Iley wrote. "The F.H.L.B. acted as a forgiving lender of the last resort, providing the liquidity to sustain mortgage production while Fannie and Freddie acted as risk intermediaries of last resort with record purchases of mortgages."

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